A Survival Guide For Third-Party Amazon Sellers

Business as usual is coming to an end for many third-party Amazon sellers. Competition on Amazon U.S. is reaching new heights and it’s only going to get worse from here.

Chinese sellers are flooding the marketplace thanks to preferential treatment from Amazon and the USPS. Because their costs are lower, Chinese sellers are underpricing and outselling U.S. competitors in their own backyard.

The original categories of top third-party Amazon sellers have saturated. So they’re entering new categories – categories you may be selling in – and all of the systems and resources that launched them to the top of their original categories are coming with them.

The supply chain is shrinking fast. Manufacturers and brands are cutting out the middleman – you and other third-party sellers – and going direct. According to Forbes: “The number of manufacturers selling directly to consumers is expected to grow 71% this yearto more than 40% of all manufacturers.”

All this increased competition has resulted in a ‘race to the bottom’ in many categories on Amazon. Chinese sellers, top third-party sellers and manufacturers and brands, however, have more pricing flexibility with lower costs and higher margins. Many third-party sellers are finding that they have to work harder and harder to generate the same top line sales, but are not receiving the same bottom line profit.

When you add it all up, it’s easy to see that the long-term viability of the reseller model is very much in doubt. The situation isn’t hopeless, however. This guide lays out what you can do as a third-party seller to put your business in the most competitive position possible.

To stand a chance of surviving, you must do one of two things. The first is develop a unique sourcing advantage. There must be something unique about your supply chain or how you source products to sell. But what if you can’t negotiate exclusive distribution agreements with your suppliers or don’t want to create your own private label products?

You Need to Achieve Economies of Scale to Last Long as a Third-Party Amazon Seller

To achieve economies of scale … to drive up your sales and purchasing volume … you must first drive down your costs … and then your prices on Amazon.

In this guide, we’ll go over each of the costs you have a realistic chance of lowering, and more importantly, how to do it. You’ll find out how to create the necessary leverage to negotiate lower product costs with suppliers even if they are fixed initially.

We’ll explain what it takes to fulfill orders for less than you are now … how to create margin points after the sale … so you can pass the savings onto your customers in the form of lower prices … giving you a better chance of underpricing and outselling your competitors.

You’ll also discover the often overlooked cost you need to lower if you’re unwilling or unable to lower your product or shipping costs.

Achieving economies of scale isn’t the only thing you need to do to stay relevant. There are several other things you need to do, or do differently, keeping in mind that speed and accuracy are now basic competitive requirements.

Now, more than ever, you need to protect your margins and Buy Bux ownership. There should never be a time when your products are overpriced or underpriced. In this guide you’ll find out how to do this. How to always be selling at your best prices while protecting – and growing – your margins.

You Must Be Capable of Pivoting Your Business to Make it More Defensible and Formidable

You never want to be at the mercy of only one fulfillment method, one or two suppliers, or a handful of products. You need to develop the capability to quickly diversify your fulfillment, product and channel mix. In this guide, you’ll discover the requirements for changing how you ship and what and where you sell – so you can quickly pivot in any direction you want at any time.

What are the potential consequences of not heeding the warnings and advice given in this guide? There’s a chance you’ll go on believing the lie that past success on Amazon is a guarantee of future success. You’ll keep doing things the way you’ve always done them … you’ll continue to take your business down the same path … but you’ll likely find that no matter how hard you work or how good a job you do, it’s never enough. Competitors could soon take the lead – if they haven’t already – and your business could become irrelevant.

On the other hand, instead of fearing your competitors, this guide can help you become the competitor who is feared. Instead of watching your business collapse, you’ll know what it needs to stand the test of time. Regardless of the current state of your business – whether it’s healthy and growing, treading water, or in serious trouble – it’s exactly where you decided it would be … and it will go exactly where you decide it will go. Will your business still be around in one, two or five years? The choice is yours and yours alone.

Amazon holds regular conferences to lure Chinese sellers into the U.S. market – those who sign up get exclusive perks.

China-based sellers enjoy end-to-end freight solutions from Amazon. Unlike U.S. FBA sellers who have to split shipments at Amazon’s discretion, Chinese sellers get to send ALL their shipments to a single U.S. fulfillment center – without inventory placement fees – thanks to an unshared feature called Lock FC.

The Chinese government partially funds Amazon industrial parks. Aspiring sellers attend lectures and consultations, and take part in co-working programs up to 12 months long. There are more than 10 parks in the city of Shenzhen alone.

It’s almost $6 to ship a one-pound package from South Carolina to New York. The cost from China to New York is nearly half that cost. You’d have to spend around $50 if you wanted to send that package back to China.

Sellers also get a raw deal when they ship outside the country. A 9-ounce package from China to Toronto or London costs less than $4. From the U.S. to Toronto, it’s $14.73 and to send it to London, it’s $21.28!

As if this wasn’t enough, China-based sellers also have homegrown advantages. Many factories are based in China – so they can do a deal in a day, while U.S. third-party sellers can spend weeks checking out a supplier. China is also blessed with cheap labor. When they add to this by hiring Western marketers, they’re a formidable threat.

Because of these benefit- and cost-related advantages, Chinese sellers can underprice and outsell U.S. competitors in their own backyard. It should come as no surprise then that 34% of top Amazon sellers are based in China according to Marketplace Pulse.

It’s the new reality. Overseas competition is only going to get tougher, and in some cases, China-based sellers will have the upper hand. However, all is not lost. There are steps you can take to defend – and expand – your territory on Amazon. We’ll explain what it takes to beat lower priced competitors at their own game later in this guide.

Underdeveloped Amazon Categories Under Attack

Competition is also heating up in the U.S. Many suppliers don’t limit the number of resellers who can sell their products. This means competing with dozens, hundreds, and sometimes even thousands of other sellers who are offering the same products at the same or lower prices.

What’s worse, many top third-party sellers who started out selling clothing or books or hardware are using their expertise and tools to enter other categories – because their original categories are starting to saturate.

According to Forrester: “Many retailers are increasing the number of SKUs they sell online by a factor of 5-to-10 times. Brands too are increasing the number of SKUs they offer with new sub-brands, private label products, and a general diversification of product lines.”

If you have trouble winning the Buy Box now – imagine how much more difficult it will be in one, two or five years.

The Shrinking Supply Chain

If you’ve made exclusive distribution agreements with your suppliers, you’re in a better position than most third-party sellers – at least for now. However the number of manufacturers and brands willing to do this is steadily decreasing. And there’s a good reason why this is happening. You now have to watch out for those you may have considered allies!

The supply chain is shrinking because more and more manufacturers and brands are cutting out the middleman and selling directly to consumers. This undeniable shift is already wreaking havoc on businesses of many third-party sellers.

According to Forbes: “The number of manufacturers selling directly to consumers is expected to grow 71% this year to more than 40% of all manufacturers. And over a third of consumers report they bought directly from a brand manufacturer’s web site last year.”

By creating direct-to-consumer (DTC) channels, they gain more control over their brand image, pricing and the way their products are presented. With the customer information collected, they can consistently improve the brand experience, sharpen their marketing strategy and offer lower prices.

The Battle of Efficiency and Margins

The sharp rise in competition is causing a ‘race to the bottom’ in many Amazon categories. Chinese sellers, top third-party sellers, and manufacturers and brands have more pricing flexibility because their costs are lower and margins are higher. Some third-party sellers are finding out they have to work harder and harder each year to generate the same top-line revenue, but are not receiving the same bottom-line profit. It’s no one’s fault – it’s the nature of the Amazon marketplace. It’s designed to be easy for anyone to list products for sale, and their Buy Box algorithm gives preferential treatment to the most efficient and profitable sellers who can offer the lowest price.

While Amazon is still the go-to marketplace for third-party sellers who offer the same products as other companies, the long-term viability of this model is very much in doubt. Here’s what it will likely take for you to have a realistic chance of success selling on Amazon and other marketplaces from now on.

What It Takes to Win Now and Later

To survive and prosper, third-party sellers must develop a unique sourcing advantage. There must be something different or special about your supply chain. This is typically done by negotiating exclusive distribution agreements with suppliers or carving out a niche and creating your own private label products.

You want to be the only authorized reseller, or one of a select few. And you want to get your supplier to agree to not compete against you. This is easier said than done because not only is it becoming easier and easier for suppliers to sell direct – it’s also in their best interest! And creating your own private label products comes with its own set of challenges. One of them being the fact that you’re highly dependent on your supplier in terms of quality and production.

Achieving Economies of Scale

If you can’t negotiate exclusive distribution agreements with suppliers or create private label products, you need to achieve economies of scale to compete long-term as a third-party seller. You need to buy and sell in larger quantities. To do this, you must lower your costs, then your prices. There are three costs that you have a realistic chance of lowering: product, shipping and operating.

Product Costs: Your product costs or cost of goods sold (COGS) will probably be fixed initially. Consider aggressively lowering your prices anyway. Sacrifice short-term profits for long-term gains. While little to no margins sounds painful, it pays off down the road by boosting sales and purchasing volume – which provides the leverage necessary to negotiate discounts with suppliers.

Shipping Costs: When you lower your shipping costs you’ll be able to lower your prices and still make money. One way to do this is by having ‘catalog overlap’. This is when you buy the same SKUs from suppliers in different locations. After every sale, send the orders to the location closest to the buyer – so you pay the lowest possible price.

Operating Costs: If you can’t lower product or shipping costs, your ability to compete on price depends on whether you can lower operating costs – specifically payroll – usually the highest expense after buying your products. Your net margin – which includes operating costs – must be higher than your competitors. The way to consistently generate higher net margins is by automating operational tasks that people are doing or will do. If you can bring in the same total revenue with 1-2 less people – OR – if you can boost revenue by 30-40% without adding people or increasing your operating costs … you’ll increase your net margin … allowing you to price more aggressively and increase your sales and purchasing volume.

Driving down one or all of these costs and passing the savings onto your customers by lowering prices will drive up your sales volume. But doubling or tripling your sales volume will also put two to three times more stress on your post-sale operations.

Ask yourself the following questions:

How much time is spent handling sales and purchase orders? What if your time was cut in half, or if you had to handle two or three times as many orders with the same number of people you have now?

If you’re fulfilling orders yourself, how many packages can you ship per hour? What would you do if that number doubled, tripled, or quadrupled?

How fast and accurate is your rate shopping process? Can you choose the lowest cost shipping method for each line item of every order all the time? Do you take into account every supplier’s location, particular carriers, negotiated shipping cost savings, and all available shipping service levels? If you can, how much time are you spending on this? What else could you be doing to reinvent your business?

Achieving economies of scale and streamlining post-sale operations aren’t the only requirements for staying relevant. There are several other things you need to do, or do differently, other capabilities you need to develop if you haven’t already … to put your business in the most competitive position possible.

Don’t Overprice or Underprice Products

You need to ensure your products are never overpriced or underpriced. You must be able to precisely raise or lower prices as soon as possible after your costs – or your competitors’ prices – change. You never want to be guessing or slow to react. You must make it your mission to always be selling at the right price no matter who you buy from, where you sell, or how you ship. To do this you need to use a repricer.

The problem is, many repricers do only half of the job. They only connect to sales channels – not suppliers – so they reprice when your competitors’ prices change, not when your costs change. When product, shipping or operating costs rise or fall, your prices have to be raised or lowered manually. This usually isn’t as fast or as accurate as you need to be competitive.

If costs go up and you don’t raise your floor prices, your products will be underpriced and your gross margin will shrink. But what if costs go down and you don’t lower your floor prices? Your products will be overpriced and you could lose the Buy Box – and lots of potential sales – depending on how crowded your category is. Ignoring even a slight cost increase or savings might be the difference between selling at a profit or at a loss and winning or losing the Buy Box.

Bottom line: knowing when your costs – not just your competitors’ prices – change and reacting accordingly is the key to ensuring your products aren’t overpriced or underpriced. But you can’t expect to be able to manually raise or lower the prices of all your products across all your listings and channels as frequently as these changes occur. The third-party sellers who set and forget their costs or who adjust their prices manually are putting their businesses in a highly uncompetitive position.

Diversify How You Ship and What You Sell

Use alternate fulfilment methods such as cross-docking or drop shipping to test the viability of large numbers of new products – without having to purchase them in advance. Once you find out what sells and at what price, and what doesn’t sell, you can better decide what to stock in your warehouse or FBA.

You don’t want to be at the mercy of only one or two suppliers, or a small number of high performing products. Look into streamlining and automating the processes you use to seek out new suppliers and list new products. To be competitive, you should be able to change what you sell at any time by quickly identifying the best new suppliers and listing their products for sale.

However, product diversification is no quick or easy task.

You need to do sufficient research into potential suppliers to ensure you make a good choice. Find out what, when, and how product, inventory, pricing and order data is shared. What are their payment terms and are they negotiable? Remember to compare UPCs to current Buy Box prices. You’ll need to use these numbers when you talk prices.

Accelerate Speed to Market

Onboarding a new supplier can be tedious and time-consuming. Some, if not all, of your supplier’s product data will need to be scrubbed so it’s consistent and complete. Duplicate entries and missing records must be found and fixed. Non-text characters must be removed from product titles and descriptions. Abbreviations and acronyms need to be standardized. Normalizing thousands of SKUs by hand, one at a time is boring, low-value work. Mistakes are going to happen. But in order for your products to be found and bought, your product content must be complete, accurate, compelling and fit Amazon’s content and format requirements.

Then you have to list the products for sale by matching UPCs to existing listings or ASINs or by creating new listings. Matching UPCs to ASINs by hand takes a lot of time and effort. However, using an unreliable automated solution like Amazon’s Inventory Loader (AIL) can result in major problems.

Other third-party sellers make mistakes when creating new listings. Mistakes which result in incorrect UPCs and/or incorrect or missing manufacturer part numbers.

You may have 10-15 different ASINs for a single UPC – so AIL can match UPCs to the wrong ASINs. The resulting fallout is costly – customer returns, order cancellations, negative feedback and maybe even account suspension.

Many third-party sellers avoid using Amazon’s Inventory Loader because the risk outweighs the reward. So they end up at the other end of the spectrum – where someone looks at everything to make sure the UPC matches the ASIN. Even if you hired offshore developers or college interns to do all the legwork, this approach isn’t as fast or as agile as it needs to be. If onboarding a new supplier and getting listing coverage in weeks, not months isn’t a realistic possibility right now, then it must become one soon.

Tap Into New Sources of Demand

At any time, you should be able to change not only what you sell, but where you sell. If your categories on Amazon U.S. are getting crowded, then move into another international Amazon marketplace – or more than one. Try Walmart, Jet, Newegg, Fruugo or Wish. Just keep in mind that each channel will have different requirements. That means things could get hectic if you don’t have a central hub to handle all of your inventory, orders and product content. You need to solve the operational problems created by channel expansion so you can enter new markets like clockwork if necessary.

Great – Now How Do I Do All of This?

All of these processes are complex, but complexity also creates opportunity. If you can automate or eliminate the majority of the work so you only have to deal with exceptions, you’ll gain a competitive advantage over those doing it the longer, slower way. To do this, the front- and back-end of your business must be connected. Sales to supplier integration provides the data centralization and data integrity required for process automation, quick pivoting and explosive growth.

How efficient are your current processes? Could they support the weight of a rapidly changing and growing business? The answers for many third-party sellers are “not very” and “no.”

Instead, they’ve cobbled together a makeshift set of solutions for each job and developed individual workarounds to fill in the gaps. But research shows that no matter how you organize it, it’s just a series of band-aids that actually slows decision making. Data must still be manually reconciled, consolidated, and transferred between systems. You still need to format reports and perform quality checks. While this approach costs less upfront, it can increase operating costs because people must perform these processes – putting your business in a highly uncompetitive position down the road.

The key to surviving and prospering in today’s constantly changing marketplace comes down to one thing: the innovation and efficiency of your operations. Operational innovation and efficiency is the only way your business can stay relevant.

How a Few Large Third-Party Sellers Dominate on Amazon

The largest and most successful third-party Amazon sellers are ruthlessly efficient. Their systems and processes allow them to run their businesses for less than their competitors. For less than you can. They get higher net margins due to lower operating costs, since their systems do the work that employees normally do. They built – and now maintain – an unbeatable competitive advantage: their operating costs are lower and net margins higher, which enables them to offer lower prices, which increases their sales volume, which increases their buying power with suppliers, which lets them buy larger quantities for less money, which enables them to offer the lowest prices – and dominate their category. Then they turn to the next category.

Learn From the Past to Plan for the Future

In the 1970s and 80s Walmart rose to power by cutting purchasing and distribution costs through operational innovation and efficiency. Sears paid four times more to get products to their stores. Walmart took their cost advantage and offered lower prices, while maintaining a higher profit margin. They then went back to their suppliers and purchased 3-4 times more, always negotiating lower prices. Their cheaper and more efficient distribution system – basically, how they managed their operations – gave them a competitive advantage they maintain to this day.

The same is true online. Operational innovation and efficiency is critical. Third-party sellers who adapt to this new reality first and fastest – who weed out the root causes of inefficiency in their business operations – have the best chance of staying ahead of the competition.

Driving Operational Innovation and Efficiency

You’ll find the operational innovation and efficiency you need by replacing disconnected point solutions and processes with a single unified platform. A multi-channel ecommerce solution like Etail that connects every area of your business – from purchasing to fulfillment. Top third-party sellers have agile and resilient businesses because they have a single source of truth. Product, inventory, pricing and order data flows both ways through each area of their business. Data integrity is ensured, and human error – which is caused by constantly re-entering data and by using software applications that can’t communicate – is eliminated. Pre- and post-sale processes are automated, allowing them to make the right decisions at the right time. They are poised to defend – and expand – their territory on Amazon. Shouldn’t you put your business in the same position?

With a single integrated platform you can:

Achieve Economies of Scale: Avoid hiring employees and run your business for less than your competitors. Maintain or lower operating costs and offer lower prices. Outprice and outsell competitors. Use sales volume increase to lower product costs with suppliers. Offer lowest prices and dominate your category.

Never Overprice or Underprice Products: Detect when costs – and competitors’ prices – rise or fall. Automatically raise or lower prices of any number of products across any number of channels to prevent a loss of margin and sales volume.

Diversify How You Ship and What You Sell: Leverage new shipping methods to expand your product mix and test new product viability. Buy inventory after it has sold, not before. Develop a more defensible product mix by quickly locating new suppliers with high margin products.

Accelerate Speed to Market: Add large SKU supplier catalogs and increase your SKU to listing ratio. Get complete listing coverage on Amazon in a fraction of the normal time by automating complex UPC to ASIN matching decisions.

Tap Into New Sources of Demand: Diversify your sales strategy and maximize visibility by operating multiple seller accounts in the same or different countries. Retrieve product data from suppliers, normalize it, and publish it to all channels – exactly as each channel requires.

Finding the Right Solution

Change is something that most third-party sellers tend to avoid. But there comes a time when what you have, no longer does what you need. With countless solution providers all claiming to do what you need, finding the right replacement can be challenging. With so much noise and misinformation, avoiding a bad choice is just as important as finding the right technology partner. Here are some questions to ask that will help you identify the companies that can actually help improve your operational efficiency.

Ensuring Data Integrity

Does the platform contain all the modules needed for ecommerce operations: order management, inventory management, catalog and listing management and repricing in a single integrated platform?

Is the platform fully integrated so data doesn’t need to be reentered at any point in the process?

Does the platform support scanning for inventory receiving to ensure accuracy?

Inventory Management

Can the platform automate data exchanges from all of your suppliers?

Can the platform allocate inventory by channel and automatically update all channels when an item is sold?

Can the platform manage inventory across multiple locations including FBA and 3PLs?

Can the platform provide visibility to inventory throughout the supply chain: on-hand, in-channel, in transit, and at all locations?

Can the platform support complex operations like just-in-time cross docking, assemblies, and kitting?

Does the platform offer tools to reconcile inventory received across multiple shipment with purchase orders issued?

Order Management and Fulfillment

Does the platform support all ecommerce fulfillment options (shipping from stock, drop shipping, cross-docking, 3PLs and Amazon FBA, FBM, MCF and other programs) so you don’t need to replatform as your business evolves?

Can the platform temporarily take down listings when you don’t have inventory, so you can to prevent ordering and avoid the risk of overselling?

Can the platform split orders and optimize each item in terms of supplier cost, fulfillment methods, shipping time, or other criteria you set?

Can the platform aggregate orders from all channels?

Can the platform automatically create and verify purchase orders?

Catalog and Listing Management

Can you streamline listing management by fully automating data exchanges with suppliers?

Can you import product catalogs from suppliers and automatically create listings across all channels?

Does the system automatically retrieve supplier price and availability feeds and instantly update listings across channels?

Can the platform automatically remove listings for products restricted by the marketplace and block creation of new listings for restricted items?

Can the platform automatically create new listings by matching other Amazon listings?

Does the system provide tools to analyze supplier catalogs and determine which products are profitable to list?

Margin Maximization

Is repricing integrated with supplier data feeds and adjusted based on total, actual costs – including the cost of fulfillment?

Can the platform intelligently choose the lowest cost supplier and fulfillment method for every line item on every order?

Can the system automatically route orders to the vendor or warehouse to take advantage of location specific shipping advantages like negotiated shipping rates?

Does the platform offer rate shopping among shipping options?

Can the platform fully automate routine tasks such as PO issuance to allow for growth without adding overhead?

Does the platform provide integrated Business Intelligence tools, reports and dashboards for forecasting and better decision making?

Implementation and Support

Does the platform provide professionally managed implementation?

Does the platform provide live training with your own data?

What’s the platform’s online reputation for responsiveness?

Using the above guidelines as a checklist when shopping around will give you a clearer picture about what each company, each platform, offers. This will help you to compare, and narrow down the best available multichannel ecommerce platform options so you can achieve the highest level of operational efficiency in your business.

The Bottom Line

It is a lot to take in, these unexpected twists and turns of the evolving online marketplace – Chinese sellers invading Amazon U.S., top third-party sellers moving into new categories, suppliers becoming competitors. But it’s all part of the ride, and all that matters now is how you adjust and adapt your business. If you can take even some of the recommended steps above to improve your operational efficiency and agility, you have given yourself a fighting chance.

About the Author: Michael Anderson is the CEO and Co-Founder of Etail Solutions – an ecommerce Sales and Supply Chain Management Platform. He has been helping brands and marketplace sellers streamline and automate their ecommerce operations since 2010. He is passionate about seeing business and brand owners save time, cut operating costs and boost sales volume and margins through operational innovation and efficiency.

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